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ARM Mortgage Calculator: How do I calculate my monthly ARM payment?

Applying for an adjustable-rate mortgage (ARM) is just like applying for any other mortgage loan. The complexity of ARMs is in how the interest is calculated and the fact that the interest rate adjusts, which makes the loan payments somewhat unpredictable.
To calculate the interest, the mortgage lender chooses an index or benchmark that the loan rate will follow and as this benchmark fluctuates, the interest rate changes up or down. The lender adds a margin, in the form of a percentage, and together the index and margin determine the total interest rate. The margin will remain the same over the life of the loan, but the index rate will vary based on the market index.
For these reasons it’s extremely useful to use an adjustable rate calculator.
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Read on to learn more about the adjustable rate calculator and how to calculate an ARM monthly mortgage payment

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What is an ARM mortgage?

As you can see, the main feature of an adjustable-rate mortgage (ARM) is the interest rate that adjusts during the loan term. Most ARMs start with a promotional rate, which may change multiple times a year or at specific adjustment periods. When the promotional rate expires the rate increases up to a ceiling or cap set by the lender. Because the interest rate fluctuates up or down, the borrower's monthly payment can increase or decrease based on the performance of the particular rate index that the loan follows.
Learn more about how an adjustable rate mortgage works.

How to calculate your ARM monthly payment

Rates are determined by several factors, including a market index or benchmark the lender chooses. The lender adds a “margin” to the benchmark index interest rate. The margin refers to percentage points that increase the overall rate. Together, the index + margin = fully indexed ARM rate. When shopping for an ARM, be sure to ask the lender what margin they add. You may find that this number varies among lenders.
Try this ARM mortgage calculator to view what your payments may be with an ARM.

ARM vs. fixed-rate mortgage: What's the difference?

The difference between fixed and adjustable-rate mortgages is the interest rate. As their names imply, a fixed-rate mortgage is fixed for the entire loan term. The interest rate of an adjustable-rate mortgage may be fixed for a short period at the start of the loan term, then it adjusts during the course the loan.
Depending on your financial situation and real estate goals, it may be better to get a fixed-rate mortgage. When it comes to fixed-rate vs. adjustable-rate mortgages, buyers like fixed rate-mortgages because the monthly mortgage payments will be the same each month, so budgeting is easy. However, some buyers prefer and may benefit from getting an adjustable-rate mortgage.

ARM terms to know

To help you better understand adjustable-rate mortgages, here are some of the most common terms to be familiar with:
Mortgage amount. This is the mortgage loan amount.
Initial interest rate. This is the interest rate your payments will be based on, before the loan adjusts. The interest rate is different from the Annual Percentage Rate (APR), which includes other expenses such as mortgage insurance, and the origination fee and or point(s), which were paid when the mortgage was first originated. The APR is normally higher than the simple interest rate.
Term in years. All loans have a term, which is the number of years that it will be in effect, unless the property is sold. The interest rate and the loan term are two factors that help will determine how much your monthly payment will be (along with the down payment, total loan amount, homeowners insurance, and taxes).
Interest rate cap. Although ARM interest fluctuates, all ARMs come with a cap. Your interest rate will not be adjusted above this rate.
Months before first adjustment. The number of months during which the interest rate is fixed. After this period, the interest rate will be subject to rate adjustments.
Expected adjustment. The amount you believe that your mortgage's interest rate will change. This amount will be added to or subtracted from your interest rate.
Months between adjustments. The number of payment periods between potential adjustments to your interest rate. The most common is 12 months, which means your payment could change at most once per year.
Initial monthly payment. Monthly principal and interest payment (PI) based on your beginning balance and initial interest rate.
Total payments. Total of all monthly payments over the full term of the mortgage. This total payment amount assumes that there are no prepayments of principal.
Total interest. Total of all interest paid over the full term of the mortgage. This total interest amount assumes that there are no prepayments of principal.

Pros and cons of Adjustable-Rate Mortgages (ARMs)


Lower initial interest rate. This lower initial rate makes ARMs very attractive. This provides some time to do renovations or potentially earn higher income, so when the rate adjusts higher, you’ll be in a stronger financial position.
Lower monthly payments. A low introductory rate means lower payments each month. Even when the rate adjusts higher you may end up with a lower rate than you may have had with a fixed-rate loan.
Better for short-term homeowners. Starting with a low rate is beneficial if you don’t plan to keep the house for many years 


Unpredictable and complex. ARMs are not for homeowners who enjoy predictability in their financial endeavors. Although ARMs come with a rate cap, they are more complex than fixed-rate mortgages and many homeowners are surprised when it comes time for the rate to reset higher.

Prepayment penalty. Some ARMs come with a prepayment penalty that the lender will charge if you sell the home and pay off the mortgage or refinance the loan before a certain period.

Payment increases. Because the rate is adjustable, you’ll need to be prepared for monthly payments to go up periodically.

Is an adjustable-rate mortgage worth it?

Whether or not an adjustable-rate mortgage is worth it is entirely up to you based on your unique financial situation. It may be worth it if you foresee earning more money in the future, so you won’t have to worry about the interest rate increase. If you’ll be keeping the home for less than five years, then you could save money with an ARM. However, if you need predictable monthly payments and are on a fixed budget, then an ARM would not be the best choice.
Get started with this ARM loan calculator.

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For over 60 years CU SoCal has been providing financial services, including car loans, mortgages, Home Equity Loans, HELOCs, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.

Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

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